Is a Short Sale Purchase for You?
Think you can make a killing on a short sale purchase? Maybe. Think it's going to be easy? Probably not. Think it will be quick? Think again! After investing time, energy and emotion in a short sale transaction, many buyers are finding out they really don't have the stomach for such a deal and they're walking away from short sales completely. Usually, the problem is that they went in with unrealistic or uninformed expectations. Here are just a few personal observations that could help you decide if buying a short sale property is the right move for you.
To start off, it might be helpful to understand what a short sale is. In simplest terms, a short sale is a real estate transaction in which it the seller will not derive sufficient proceeds to cover his necessary costs of selling and his outstanding mortgage(s) and other liens. For the sale to succeed, the lienholders (and oftentimes some of the service providers, such as the Realtors® and attorneys) have to agree to accept less than the total balances owed them. This is only going to happen after the lienholders are satisfied that it is in their interest to do so. Getting to that point typically requires a demonstrable hardship on the seller's part and a reasonable estimation that the price and terms that on the table are realistic in the current market. If the seller has no compelling need to sell or has significant assets that could be applied to the shortfall, or if the lienholder thinks it can do considerably better under foreclosure, then the short sale will not occur.
This brings us to the question of making a killing. It's not likely that the lienholder sees itself as a charitable operation whose purpose in the world is to enrich the buyer by accepting a ridiculous price. Remember, the lower the sales price, the greater the lienholder's loss and the less likely the short sale will be approved. While there's typically not a top of market expectation, there has to be a healthy dose of reality in the final number. The successful short sale buyer will keep this in mind while working with his or her Realtor in calculating an effective negotiating strategy.
As for the transaction being easy or quick, my experience has been for the most part that short sales are drawn out and frustrating for all concerned. It often seems as though the process is totally devoid of common sense or any semblance of efficiency. Remember, however, the lienholder is probably processing thousands of other short sales along with your transaction. While every one of the participants in all of those sales feels his or her file should receive priority attention, the overburdened handlers have a responsibility to perform a certain level of due diligence. Believe it or not, the process has improved somewhat over time, but it is still nowhere close to being smooth or efficient. A buyer who is not prepared to wait three to four months--and sometimes longer--for events to run their course is not a candidate for a short sale purchase. If you don't give the process enough time to work, you're just wasting your time and everyone else's time, too.
Adding to the frustration is the fact that once the short sale is finally approved by the lienholder, often a very limited window of time is allowed to close the sale. This requires the buyer to perfect his or her financing and be prepared to close on relatively short notice. On the seller's side, it means finding a new place to live and arranging a move with little advance notice. These pressures add stress to both sides of the transaction.
Short sales often offer excellent value opportunities for the astute buyer, but as the old saying goes, "There's no such thing as a free lunch." In other words, the buyer needs to be informed, patient and ready to jump through some hoops. Not everyone is willing or in a position to deal with the rigors of a short sale. Recognizing that up front can save a lot of time and exasperation.
Bob Dohn
Coldwell Banker Residential Brokerage
140-A S. Roselle Rd., Schaumburg, IL 60193
Direct phone: 847-301-3126
Web: www.BobDohn.com
To start off, it might be helpful to understand what a short sale is. In simplest terms, a short sale is a real estate transaction in which it the seller will not derive sufficient proceeds to cover his necessary costs of selling and his outstanding mortgage(s) and other liens. For the sale to succeed, the lienholders (and oftentimes some of the service providers, such as the Realtors® and attorneys) have to agree to accept less than the total balances owed them. This is only going to happen after the lienholders are satisfied that it is in their interest to do so. Getting to that point typically requires a demonstrable hardship on the seller's part and a reasonable estimation that the price and terms that on the table are realistic in the current market. If the seller has no compelling need to sell or has significant assets that could be applied to the shortfall, or if the lienholder thinks it can do considerably better under foreclosure, then the short sale will not occur.
This brings us to the question of making a killing. It's not likely that the lienholder sees itself as a charitable operation whose purpose in the world is to enrich the buyer by accepting a ridiculous price. Remember, the lower the sales price, the greater the lienholder's loss and the less likely the short sale will be approved. While there's typically not a top of market expectation, there has to be a healthy dose of reality in the final number. The successful short sale buyer will keep this in mind while working with his or her Realtor in calculating an effective negotiating strategy.
As for the transaction being easy or quick, my experience has been for the most part that short sales are drawn out and frustrating for all concerned. It often seems as though the process is totally devoid of common sense or any semblance of efficiency. Remember, however, the lienholder is probably processing thousands of other short sales along with your transaction. While every one of the participants in all of those sales feels his or her file should receive priority attention, the overburdened handlers have a responsibility to perform a certain level of due diligence. Believe it or not, the process has improved somewhat over time, but it is still nowhere close to being smooth or efficient. A buyer who is not prepared to wait three to four months--and sometimes longer--for events to run their course is not a candidate for a short sale purchase. If you don't give the process enough time to work, you're just wasting your time and everyone else's time, too.
Adding to the frustration is the fact that once the short sale is finally approved by the lienholder, often a very limited window of time is allowed to close the sale. This requires the buyer to perfect his or her financing and be prepared to close on relatively short notice. On the seller's side, it means finding a new place to live and arranging a move with little advance notice. These pressures add stress to both sides of the transaction.
Short sales often offer excellent value opportunities for the astute buyer, but as the old saying goes, "There's no such thing as a free lunch." In other words, the buyer needs to be informed, patient and ready to jump through some hoops. Not everyone is willing or in a position to deal with the rigors of a short sale. Recognizing that up front can save a lot of time and exasperation.
Bob Dohn
Coldwell Banker Residential Brokerage
140-A S. Roselle Rd., Schaumburg, IL 60193
Direct phone: 847-301-3126
Web: www.BobDohn.com
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